ACIT, Trichy V. Metro Fabrics, Karur

ITA 299/CHNY/2014

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 8769 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-02-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 27-01-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 10-02-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GURU BHASHYAM
• Keywords: Depreciation; Capital expenditure
• Section: 40A(3); 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI . . , . . , !' [BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI S. S. GODARA, JUDICIAL MEMBER] ./ I.T.A.NO.299/MDS/2014 / ASSESSMENT YEAR : 2008-09 THE ASSTT. COMMISSIONER OF INCOME-TAX CIRCLE II TRICHY VS. M/S METRO FABRICS 44 7 46, FIFTY FEET ROAD RAMAKRISHNAPURAM NORTH KARUR 693 002 [PAN AAAFM 5247 P] ( #$ / APPELLANT) ( %&#$ /RESPONDENT) / APPELLANT BY : SHRI GURU BHASHYAM, JCIT /RESPONDENT BY : SHRI QUADIR HOSEYN, ADVOCATE / DATE OF HEARING : 27-01-2015 / DATE OF PRONOUNCEMENT : 04-02-2015 ' / O R D E R PER S.S.GODARA, JUDICIAL MEMBER THIS REVENUES APPEAL FOR ASSESSMENT YEAR 2008 -09, IS DIRECTED AGAINST ORDER OF THE COMMISSIONER OF INC OME-TAX (APPEALS) TIRUCHIRAPALLI DATED 29.11.2013, PASSED IN APPEAL N O.449/2010- 11/CIT(A)/TRY, IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME- TAX ACT, 1961 (IN SHORT THE ACT). I.T.A.NO.299/14 :- 2 -: 2. THE REVENUES GROUNDS CHALLENGE THE LOWER APPELLATE ORDER DELETING DISALLOWANCE OF BUILDING MAINTENANCE EXPEN SES OF ` 7,03,665/-, U/S 40A(3) OF ` 11,59,462/- AND RESTRICTING THE LAST ONE UNDER THE HEAD MISCELLANEOUS EXPENSES FROM ` 5 LAKHS TO ` 2 LAKHS ONLY; AS MADE IN THE REGULAR ASSESSMENT FRAMED ON 30.12.2010. 3. THE ASSESSEE-FIRM EXPORTS HANDLOOM TEXTILES. IT H AD FILED ITS RETURN ON 28.3.2009 DECLARING TOTAL INCOME OF ` 8,75,570/- DERIVED FROM EXPORT ACTIVITY AND WINDMILL DIVISION. THE SA ME WAS SUMMARILY PROCESSED. THEREAFTER, THE ASSESSING OFFICER COMPL ETED A REGULAR ASSESSMENT, INTER ALIA TREATING THE EXPENSES INCUR RED ON BUILDING MAINTENANCE OF ` 7,03,665/- AS CAPITAL EXPENDITURE, DISALLOWED A SU M OF ` 11,59,462/- U/S 40A(3) AND MADE ADHOC DISALLOWANC E OF ` 5 LAKHS FROM MISCELLANEOUS EXPENSES INCURRED ON DYEING, W EAVING AND PRODUCTION AMOUNTING TO ` 1,46,01,494/-. 4. THE CIT(A) HAS DELETED THE FORMER TWO DISALLOWANCES AND RESTRICTED THE LAST ONE TO ` 2 LAKHS ONLY. THEREFORE, THE REVENUE IS IN APPEAL. 5. NOW, WE COME TO THE REVENUES FIRST GROUND ON THE ISSUE OF DISALLOWANCE OF BUILDING MAINTENANCE OF ` 7,03,665/-. THE ASSESSEE IN ITS PROFIT & LOSS ACCOUNT HAD CLAIMED THIS AMOUN T AS INCURRED ON I.T.A.NO.299/14 :- 3 -: BUILDING CO-OWNED BY ITS PARTNERS. IT STATED TO HA VE DECORATED THE BUILDING UPSTAIRS TO SUIT THE REQUIREMENTS OF SAMPL E ROOM WITH PARTITION AND PROVISIONS FOR DISPLAY OF SAMPLES TO ATTRACT FO REIGN BUYERS. PER ASSESSEE, THIS WAS AN ALLOWABLE REVENUE EXPENDITU RE. THE ASSESSING OFFICER HELD THAT THIS EXPENDITURE HAD ADDED A NEW ADDITIONAL ENDURING ADVANTAGE ENHANCING THE CAPACITY/EFFICIENCY BEYOND ORIGINAL CAPACITY OF THE BUILDING. HE ACTED ACCORDINGLY AND MADE THE IMPUGNED DISALLOWANCE. HE ALSO DENIED DEPRECIATION RELIEF T O THE ASSESSEE ON THE GROUND THAT IT DID NOT OWN THE BUILDING. 6. THE CIT(A) IN HIS ORDER TREATS THE IMPUGNED EXPENDI TURE INCURRED FOR MERELY ROUTINE DESIGNING, MODIFICATION AND ALTERATION FOR AN EXPORTERS REQUIREMENTS NOT GIVING ANY ENDURING BENEFIT TO TREAT IT AS A REVENUE ONE. 7. WE HAVE HEARD BOTH PARTIES AND GONE THROUGH THE REL EVANT FINDINGS. THE ASSESSEE HAS INCURRED THIS SUM OF ` 7,03,665/- IN A RENTED BUILDING PREMISES FOR DECORATION/DESIGNING T O ATTRACT EXPORTERS ETC. THE REVENUE DOES NOT RAISE ANY DISPUTE ABOUT THIS FACTUAL POSITION. IT AVERS THAT THE AFORESAID CHANGES IN T HE RENTED BUILDING HAVE BEEN MADE TO GET AN ENDURING ADVANTAGE/INCREAS E IN CAPACITY. NO SUCH ELEMENT EMANATES FROM THE PRESENT CASE FILE . NOR THE I.T.A.NO.299/14 :- 4 -: REVENUE HAS PRODUCED ANY SUPPORTIVE EVIDENCE. IN T HESE CIRCUMSTANCES, THE CIT(A) FINDINGS ARE AFFIRMED. T HE REVENUES GROUND IS REJECTED. 8. THE REVENUES SECOND SUBSTANTIVE GROUND SEEKS TO RE STORE SECTION 40A(3) DISALLOWANCE OF ` 11,59,462/- (SUPRA). THE ASSESSEE HAD PAID UNDER STITCHING EXPENSES TO M/S G. PRIRANE SH TAILORING UNIT, K. DINESH TAILORING UNIT AND N.R.ASHOK TAILORS SUMS OF ` 4,62,965/-, ` 3,76,989/- AND ` 3,19,508/- RESPECTIVELY IN CASH (EXCEEDING ` 20,000/-) ON VARIOUS DATES IN THE RELEVANT PREVIOUS YEAR. TH E ASSESSING OFFICER OBSERVED THAT NO CIRCUMSTANCES HAD BEEN FORTHCOMING UNDER RULE 6DD OF THE INCOME-TAX RULES WERE FORTHCOMING. LACK OF NECESSARY EXPLANATION ON ASSESSEES PART WAS ALSO QUOTED TO INVOKE SECTION 40A(3) FOR ABOVE THREE PAYMENTS. 9. THE CIT(A) HAS DELETED THE IMPUGNED DISALLOWANCE BY OBSERVING AS UNDER: 5. I HAVE GONE THROUGH THE SUBMISSIONS MADE BY TH E APPELLANT AS WELL AS THE REASONING GIVEN BY THE ASS ESSING OFFICER WHO HAS NOT DOUBTED THE GENUINENESS OF THE PAYMENTS MADE IN HIS ASSESSMENT ORDER. OVER AND AB OVE THE APPELLANT ALSO HAS SHOWN THAT TDS HAS BEEN DEDU CTED ON THE WAGE PAYMENTS MADE TO THE TAILORING CONTRACT ORS. HENCE I DO NOT FIND ANY REASON TO DISALLOW THE CLAI M U/S 40A(3) AS THESE PAYMENTS WERE ALSO COVERED UNDER RU LE 6DD(K) OF THE I.T. RULES AND THE RELIANCE PLACED BY THE I.T.A.NO.299/14 :- 5 -: ASSESSING OFFICER ON THE CASE LAWS MENTIONED VIDE C ITATIONS 173 ITR 340, 239 ITR 355 AND 184 ITR 264 ARE HEREBY DISTINGUISHED AND ARE NOT APPLICABLE TO THE FACTS O F THE APPELLANTS CASE IN TOTO AND HENCE THE ASSESSING OF FICER IS DIRECTED TO ALLOW THE CLAIM MADE BY THE APPELLANT. IN THE RESULT, THIS GROUND OF APPEAL IS IN FAVOUR OF THE ASSESSEE. 10. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE LOWER AUTHORITIES. IT IS AN UNDISPUT ED FACT THAT THE ASSESSEE HAS NOT TENDERED ANY EXPLANATION IN SCRUT INY OR LOWER APPELLATE PROCEEDINGS JUSTIFYING THE IMPUGNED CASH PAYMENTS VIS--VIS THE CIRCUMSTANCES ENVISAGED UNDER RULE 6DD(K). NOR IS ANY DISCUSSION FORTHCOMING FROM THE LOWER APPELLATE ORDER. IN THE SE CIRCUMSTANCES, WE DEEM IT APPROPRIATE THAT THIS ISSUE DESERVES TO BE REMITTED BACK TO THE ASSESSING OFFICER FOR DECISION AFRESH. WE ORDE R ACCORDINGLY THE REVENUES GROUND IS ACCEPTED FOR STATISTICAL PURPOS ES. IT IS MADE CLEAR THAT THE ASSESSEE SHALL BE AT LIBERTY TO LEAD ALL OF ITS RELEVANT EVIDENCE IN CONSEQUENTIAL PROCEEDINGS. 11. THIS LEAVES WITH THE REVENUES LAST GROUND CHALLE NGING THE CIT(A)S ORDER RESTRICTING THE MISCELLANEOUS EXPEND ITURE ADHOC DISALLOWANCE FROM ` 5 LAKHS TO ` 2 LAKHS. THE ASSESSING OFFICER HAD MADE THIS ADHOC DISALLOWANCE BY QUOTING ALLEGED NON -VERIFICATION OF THE SELF-MADE VOUCHERS/THEIR RECIPIENTS ALONGWITH LACK OF DETAILS I.T.A.NO.299/14 :- 6 -: PERTAINING TO THE WORKS CARRIED OUT. THE CIT(A) HA S PROCEEDED TO RESTRICT THIS DISALLOWANCE BY ADOPTING AVERAGING FO RMULA TO THE TUNE OF ` 2 LAKHS. HE OBSERVES THAT EXISTENCES OF THIS KIND OF EXPENSES CANNOT BE ALTOGETHER DENIED. 12. BEFORE US THE REVENUE FAILS TO POINT OUT ANY ERROR IN THE LOWER APPELLATE ORDER. IT HAS ALSO NOT PRODUCED AN Y SUPPORTIVE DOCUMENTS DOUBTING THE ASSESSEES VOUCHERS RIGHT F ROM ASSESSING AUTHORITY UPTO THE 'TRIBUNAL' . THEREFORE, WE UPHO LD THE CIT(A)S ORDER BASED ON AVERAGING FORMULA AND REJECT THE CORRESPON DING GROUND RAISED IN THE APPEAL. 13. THE REVENUES APPEAL IS PARTLY ALLOWED FOR STATISTI CAL PURPOSES. ORDER PRONOUNCED ON WEDNESDAY, THE 4 TH OF FEBRUARY, 2015, AT CHENNAI. SD/- SD/- ( . . ) (B.R. BASKARAN) / ACCOUNTANT MEMBER ( . . ) (S. S. GODARA) ! '# / JUDICIAL MEMBER $! / CHENNAI %' / DATED:4 TH FEBRUARY, 2015 RD '&'' ()'*) / COPY TO: ' 1 . / APPELLANT 4. ' + / CIT 2. / RESPONDENT 5. ),-' . / DR 3. ' +'/0 / CIT(A) 6. -1'2 / GF